Strategies for the sandwich generation
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Leslie Greyling*
We have all heard of the term "sandwich generation ", this refers to a generation of people who have to support their parents and adult kids financially. We find ourselves in this situation when parent/s have not made sufficient provision for retirement or due to unforeseen circumstances do not have the financial means to support themselves. At the same time, there are adult children that are still financially dependent because they are studying or are unable to find employment after completing school.
This can have a huge impact not only financially but also emotionally, on a person or couple that find themselves in the middle of the "sandwich". Especially if you did not expect or plan for such an eventuality, you now find yourself with this additional responsibility which you cannot avoid or afford.
In the current economic environment, many people are struggling to make ends meet, never mind such an unplanned additional expense.
The above situation affects the amount and rate of savings for your own retirement to a large extent and could result in a vicious cycle when you will become financially dependent on your children in later years.
It is very important to have an honest conversation with your parent/parents well in advance, well before their actual retirement age, so that you know what to expect and can plan accordingly. Do not wait until their retirement savings is depleted, and/or they must go into debt to support themselves.
With the current state pension grant of R2 180 pm (60-74 year old) and R2 200 pm for persons over 75 years of age, it is extremely difficult for retirees to live on this. Especially considering food prices, medical costs, and accommodation/rent.
As an example, take a 40 year old who now unexpectedly has to start supporting a parent/parents financially at a cost of R15 000 p.m.
Keep in mind that people live longer due to medical advances, and often a parent can live until they are in their eighties or older.
If you had to invest the R15 000 pm until your retirement at age 65, with the contributions increasing by inflation of 6% per year, and the return on the investment is an average 8% per year, also taking into account annual costs/fees of 1,5%:
After 25 years, at age 65, the illustrated investment value will be approximately R2 805 080 in real terms (taking inflation into account over the period).
The financial support amount may vary from the above example, but the fact remains that if you had to invest the money that is used to partially or fully support a parent, it could have a significant effect to your own retirement provision or nest egg.
Remember this 40-year old person in the example most likely still has children in the house and they will continue to be dependent at least until they start working and earning own income, which adds to the financial and emotional pressure.
A budget must be a priority for young and old. Establish what costs are Needs vs Wants, in other words essential expenses vs luxury expenses.
To leave children with a financial legacy or inheritance is nice, but it is more important to manage your personal finances in such a way that you do not become dependent on your children (or parents for that matter) later in life.
If you do find yourself in this "sandwich generation" circumstances, here are a few ideas to alleviate the additional financial burden.
Everyone should contribute to the household responsibilities and expenses to some extent, if possible. If the young adult or parent is not able to help financially, he/she can contribute by, for example:
- Doing the cleaning and ironing, which means you might only require a domestic worker 1x per week instead of 3 x per week.
- Doing the shopping and cooking for the family
Other things that retired parents or young adults can do part time to earn money:
- Baby sitting/au pair or pet sitting for other families.
- Transport elderly people around to the Dr, pharmacy, shops.
- Tutoring or helping kids with homework in the afternoons.
- Make pre-cooked meals which can be delivered or collected by customers daily.
- Drive children around to their extramural activities and to/from school.
- Home made products such as jam, crochet items, can be sold at flea markets.
- Receptionist at a small business.
If they have any kind of skill, it could be used to generate an income, such as:
- Administrative experience: virtual or in-person assistant.
- A person with sports background can do afternoon coaching.
- Handyman and general repairs if you have the experience.
Have a family meeting to discuss how everyone can contribute to the household to make life easier.
* Leslie Greyling, Registered Financial Planner™, is a financial advisor at Brenthurst Wealth Fourways. leslie@brenthurstwealth.co.za
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